Page 181 - Plant design and economics for chemical engineers

COST ESTIMATION 1%

Company Policies
Policies of individual companies have a direct effect on costs. For example,
some concerns have particularly strict safety regulations and these must be met
in every detail. Accounting procedures and methods for determining deprecia-
tion costs vary among different companies. The company policies with reference
to labor unions should be considered, because these will affect overtime labor
charges and the type of work the operators or other employees can do.
Labor-union policies may even dictate the amount of wiring and piping that can
be done on a piece of equipment before it is brought into the plant, and, thus,
have a direct effect on the total cost of installed equipment.

Operating Time and Rate of Production
One of the factors that has an important effect on the costs is the fraction of the
total available time during which the process is in operation. When equipment
stands idle for an extended period of time, the labor costs are usually low;
however, other costs, such as those for maintenance, protection, and deprecia-
tion, continue even though the equipment is not in active use.
Operating time, rate of production, and sales demand are closely interre-
lated. The ideal plant should operate under a time schedule which gives the
maximum production rate while maintaining economic operating methods. In
this way, the total cost per unit of production is kept near a minimum because
the fixed costs are utilized to the fullest extent. This ideal method of operation
is based on the assumption that the sales demand is sufficient to absorb all the
material produced. If the production capacity of the process is greater than the
sales demand, the operation can be carried on at reduced capacity or periodi-
cally at full capacity.
Figure 6-3 gives a graphical analysis of the effect on costs and profits when
the rate of production varies. As indicated in this figure, the fixed costs remain
constant and the total product cost increases as the rate of production increases.
The point where the total product cost equals the total income is known as the
break-even point. Under the conditions shown in Fig. 6-3, an ideal production
rate for this chemical processing plant would be approximately 450,000
kg/month, because this represents the point of maximum net earnings.
The effects of production rate and operating time on costs should be
recognized. By considering sales demand along with the capacity and operating
characteristics of the equipment, the engineer can recommend the production
rate and operating schedules that will give the best economic results.

Governmental Policies
The national government has many regulations and restrictions which have a
direct effect on industrial costs. Some examples of these are import and export
tariff regulations, restrictions on permissible depreciation rates, income-tax
rules, and environmental regulations.